NARENDRA v. SEYLAN MECHANT BANK LTD. AND OTHERS

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Narendra v Seylan Merchant Bank Ltd. and Others
fS. N. Silva C.J.)-
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NARENDRA
v
SEYLAN MERCHANT BANK LTD. AND OTHERS
SUPREME COURTS.N. SILVA, C.J.BANDARANAYAKE, J. ANDYAPA, J.
SC APPEAL (CHC) N0.10/2001HC CIVIL NO. 183/97(1)
7TH OCTOBER, 2002
Civil Procedure Code – Dismissal of action on grounds of want of a cause ofaction and prescription – Civil Procedure Code, sections 5 and 40 -Prescription Ordinance, section 9.
The plaintiff instituted action against the defendant bank and its Directorsalleging:
Firstly, the plaintiff having been misled by a prospectus issued by thedefendant company he purchased 1,456,000 shares of the bank on03.06.1994 at R.10/= per share.
Secondly, when the defendant bank decided to underwrite the publicshare issue of a company “C” and the public share issue failed, sharevalue of the defendant bank dropped by reason of the bank’s liabilitiesincurred on account of such failure.
Thirdly, the plaintiff had taken a loan from two companies havingpledged 265,000 of the aforesaid shares held by the plaintiff in thedefendant company which shares were sold by the lending companies,for default of the loan, at a devalued price. The said two companieswere not even made defendants to the action.
Fourthly, in view of the devaluation of the balance of 1,200,000 sharesheld by the plaintiff in the defendant bank, the plaintiff will sufferprospective damages in a sum of Rs. 294,000,000 on the assumptionthat the market value of a share had since reduced to Rs.5/-.
The plaintiff pleaded the matter at (i) above as the 1st cause of action and thematter at (iv) above as the 2nd cause of action.
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Held :
Although the plaint makes out a tale of woe on behalf of the plaintiff,there is no cause of action formulated in terms of section 9 and asrequired by section 40(d) of the Civil Procedure Code which could be thebasis of an action.
Per S.N. Silva, C.J.
“There is a tendency now to set out extensive facts in pleadings hop-
ing to formulate a cause as you go along. This tendency should be reversedin order to prevent a party- from being denied appropriate redress that he maysecure according to law if the pleading is correctly presented”
The 1st cause of action refers to the sale of shares on 03.05.1994based on alleged wrongful statements in the prospectus. Hence theaction filed against the defendant on 21.08.1996 is prescribed interms of section 9 of the Prescription Ordinance as the same filedafter the lapse of two years.
The 2nd cause of action relates to a loss that the plaintiff may sufferin the event of the balance shares being sold, viz, a possible loss infuture which is clearly not actionable at this stage.
APPEAL from the judgment of the High Court.
Douglas Premaratne, P.C. with Hemantha Situge for plaintiff-appellant.
C.V. Vivekananthan with P. Joseph and V.Sasitharan for 3rd defendant-respondent.
Romesh de Silva, P.C. with Hiran de Alwis for 1st, 2nd and 4th to 10thdefendants-respondents.
Cur.adv.vult.
June 12, 2003
SARATH N. SILVA, C.J.
The plaintiff-appellant has filed this action on 21.8.1996,against the 1st defendant bank and its directors being the 2nd to10th defendants, claiming damages in respect of two causes of
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Narendra v Seylan Merchant Bank Ltd. and Others
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action. Five of the issues raised by the defendants were taken upas preliminary issues of law. The Commercial High Court has heldwith the defendants and by its judgment dated 04.05.2001, dis-missed the action without costs. The appeal is from that judgment.
According to the averments in the plaint, in October 1993, the1 st defendant bank issued a prospectus inviting members of thepublic to invest in shares of the bank. The plaintiff has placed thecontents of the prospectus in the fore-front of his case. Paragraphs4, 5 and 6 of the plaint refer extensively to the contents of theprospectus. In paragraph 6 it is stated that the plaintiff relying onthe credibility and veracity of the representations made in theprospectus purchased a total of 1,456,000 of the shares of the bankvalued at Rs. 10/- each. It is revealed that the plaintiff financed thispurchase partly on a loan that he had obtained.
Paragraphs 10-20 of the plaint refer to action on the part ofthe 1st defendant bank where the bank decided to underwrite thepublic share issue of M/s Connaissance De Ceylan Ltd., at a pre-mium of Rs. 30/- per share and the liability incurred by the bank dueto the failure of the public issue. The plaint states that the sharevalue of the 1st defendant bank dropped as a result of this trans-action. After a narration of the foregoing matters the plaintiff has setout the 1st cause of action in paragraphs 26 to 28. It states “thatfrom 04.05.1995 to 15.05.1995 M/s Vanik Incorporation ServicesLtd, and M/s Vanik Incorporation Ltd, acting jointly and wrongfully,and unlawfully sold 265,000 of the plaintiff’s shares for a sum of Rs.2,731,126 whereas the value should have been Rs. 66,250,000/-.It is pleaded that a cause of action has accrued to the plaintiff tosue the 1st to 10th defendants to recover the said amount that waslost by the plaintiff. The 2nd cause of action states that the balance
shares would fetch only about Rs. 5/- per share in thecurrent market and thereby the plaintiff will suffer prospective dam-age in a sum of Rs. 294,000,000/-.
The preliminary issues of law that have been raised are onthe basis that, the plaint does not conform to the imperative provi-sions of the Civil Procedure Code; that there is a misjoinder of par-ties and/or causes of action; that there is no cause of action prop-erly set out in the plaint; that the averments are vague; that theplaint is prolix and that the plaintiff’s action is prescribed.
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Learned judge of the High Court has come to findings infavour of the plaintiff in respect of all issues.
President’s Counsel for the appellant, whilst conceding thatthere are some defects in the plaint, submitted that the dismissalitself is referable to the findings on prescription, since the otherdefects are curable. The finding on prescription is on the basis thatthe cause of action dates from the statements in the prospectus,that induced the plaintiff to purchase the shares. It was submittedthat is an erroneous computation of the time period and that the socause of action should stem from the date the plaintiff suffered lossby the sale of shares at a low price.
An examination of the plaint the contents of which have beenset out briefly in the preceding paragraphs reveals that it has beenpresented without a proper notion of the cause of action in respectof which the action is filed.
I would pause at this point to refer to certain salutary provi-sions of the Civil Procedure Code that have been observed in thebreach in presenting this plaint.
In terms of the Civil Procedure Code an action can be insti- 60tuted for the prevention or redress of a wrong described in section5 as the cause of action and to include, a denial of a right, therefusal to fulfil an obligation, the neglect to perform a duty and theinfliction of an affirmative injury. This elaboration of what constitutesan actionable wrong covers the gamut of civil law in relation torights in respect of property, obligations arising from contract,duties that arise from status and damage resulting from delict.
It is incumbent on any person presenting a plaint being themeans of commencing a regular civil action, to have proper per-ception of the cause of action in respect of which the action is filed. 70If the plaint is not structured in this way, the subsequent proceed-ings in the action may become clouded and disoriented and theparty may ultimately be denied relief in respect of the wrong per-ceived by him.
The need to have a proper perception of the cause of actionin respect of which the case is filed is brought forth in section 40which sets out the requisites of the plaint.
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Paragraph (d) of this section requires the plaint to contain;
“a plain and concise statement of the circumstances consti-tuting each cause of action, and where and when it arose.Such statement shall be set forth in duly numbered para-graphs; and where two or more causes of action are set out,the statement of the circumstances constituting each causeof action must be separate, and numbered.”
This requirement of a properly formulated cause of actionbeing contained in the plaint is linked up to the other provisionswhich deal with the later stages of the action.
Section 146 deals with the determining of issues and sub-section (2) requires the court to formulate issues “upon materialpropositions of facts or law the parties are at variance”. The core ofsuch material propositions of fact or law would be the cause ofaction set out' in the plaint. The sequence follows upto explanation2 to section 150 which sets out the manner in which the party hav-ing the right to begin should state his case. This useful explanationwhich sets out the parameters of the trial itself provides as follows:
“The case enunciated must reasonably accord with theparty’s pleading, i.e. plaint or answer, as the case may be.And no party can be allowed to make at the trial a case mate-rially different from that which he has placed on record, andwhich his opponent is prepared to meet. And the facts pro-posed to be established must in the whole amount to somuch of the material part of his case as is not admitted in hisopponent’s pleadings.”
I have set out the relevant provisions in some detail in orderto emphasize the need for pleading the cause of action properly inthe plaint.
The plaintiff in this case has set out a whole sequence ofevents commencing from what induced him to purchase sharesand ending at the point where he claims to have suffered loss. It isto be generally observed that there is a tendency now to set outextensive facts in pleadings hoping to formulate a case as you goalong. This tendency should be reversed in order to prevent a partyfrom being denied appropriate redress that he may secure accord-
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ing to law if the pleading is correctly presented. The sequence ofevents set out in the plaint commences with the prospectus thatwas issued by the company. Then it leads to the decision in respectof the “Connaissance transaction” which would have been taken bythe Board of Directors. The loss pleaded as the cause of action inparagraphs 27 and 28 of the plaint results from alleged wrongfulaction of two other companies in selling the plaintiff’s shares. It 120appears that the shares have been pledged in respect of a loantaken by the plaintiff from these companies and the companies soldthe shares because the plaintiff defaulted on the loans. These twocompanies are not even named as defendants in the action. The2nd cause of action relates to a loss the plaintiff may suffer in theevent of balance shares being sold. The wrong that is contemplat-ed is something that may occur in the future and is clearly notactionable at this stage. Thus it is seen that although the plaintmakes out a tale of woe on behalf of the plaintiff there is no causeof action that is formulated which could be the basis in an action for 130damages.
As regards the submission in respect of prescription it is seenthat the plaint sets out a series of events described as wrongful.
The first, is the narration with regard to wrongful statements in theprospectus which led the plaintiff to purchase shares of the 1stdefendant bank. If some sense is to be made out of the plaint, it isthis purchase which resulted in what is claimed as a loss. Thereforethe High Court cannot be faulted for computing the period of pre-scription from the date of the purchase of shares being 3.6.1994.
An action to recover any loss or damage should be commenced 140within 2 years, in terms of section 9 of the Prescription Ordinance.
On that basis the action that has been filed on 21.08.1996 is pre-scribed. Learned counsel contended that the cause of action ismade out when the plaintiff suffered the loss by the shares beingsold at a lower price and that the period should be computed fromthe date of the sale. It is seen that the sale was done by two com-panies who are not even parties to the action. Hence the date ofsale cannot possibly be taken as the date on which the cause ofaction arose for the purpose of computing the period of prescrip-tion. The argument therefore does not bear scrutiny.1so
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For the reasons set out above I see no merit in the appeal.The appeal is dismissed. No costs.
BANDARANAYAKE, J. -I agree.
YAPA, J.-I agree.
Appeal dismissed